Find out how to become a tax preparer at home. This article will show you everything you need to know to become a virtual tax preparer and make money from home!
Doing taxes is not everyone’s idea of a good time. From gathering paperwork, determining which credits to take, filling up tax forms to submitting them to the IRS, filing taxes indeed takes a lot of mental energy, time, and focus. Many people know this, so they turn to tax preparers to deal with taxes on their behalf.
Tax preparation is an in-demand business among busy individuals and business owners. So if you learn how to become a tax preparer, this side hustle can keep you busy and well-paid during the tax season.
Table of Contents
A tax preparer is someone who prepares and files tax returns for an individual, business, or company. According to the IRS, there are several types of professional tax preparers, depending on their qualifications and credentials. So if you want to learn how to become a certified tax preparer online, you must first determine which among these tax professionals you belong:
These are the tax preparers who have preparer tax identification numbers or PTIN. They can prepare tax returns for their clients even without credentials or education. There are states that require tax preparers to be registered and meet specific requirements. Also, PTIN holders cannot represent their clients before the IRS in any way.
Annual Filing Season Program Participants
Tax preparers who want to raise their credentials a notch higher can participate in the IRS program called Annual Filing Season Program. The ASFP is designed to increase tax preparers’ knowledge and readiness for that specific tax season. The participants must undergo 15 hours of continuing education and pass an exam to obtain a record of completion. Those who have successfully completed the ASFP also gain limited representation rights for their clients.
These are lawyers who specialize in tax. Tax attorneys have passed the BAR exams and are licensed to practice as lawyers in their states. Some people with very complicated taxes turn to tax attorneys to plan, prepare and file their taxes. Tax attorneys also represent clients before the IRS even if they did not file their taxes for them.
Certified Public Accountants
CPAs are professionals who took an accounting course in college and passed the licensure exams. CPAs are qualified to prepare and file taxes for their clients as they are certified on a state level. Many businesses hire CPAs to overlook their venture’s financial health, and tax planning and preparation is one of their roles. CPAs also have unlimited representation rights before the IRS.
These are tax professionals that are certified by the IRS. Enrolled Agents go through comprehensive tax education and must pass the Special Enrollment Examination in order to prepare and file taxes for others. EAs can manage various tax issues, both for their individual and corporate clients, regardless of the complexity. EAs may also represent their clients before the IRS.
Given that there are several types of tax professionals, it is essential to know which one of these you’d like to become before you learn how to become a licensed tax preparer. But since we are talking about a side hustle, one that you can qualify for without an accounting or law degree, we will focus on how to become a work-from-home tax preparer.
Why do people hire tax preparers?
Before we dive into the nitty-gritty of how to become a virtual tax preparer, let us first understand why tax preparation services are in demand among so many people.
1. Save time
Preparing and filing taxes is a time-consuming event. According to the IRS, the estimated tax preparation time is 13 hours. And if you’re not versed with the tax code, it could be more. Preparing and filing taxes involves recordkeeping, learning about the law or tax form, preparation of the forms, and then assembly and sending of the forms of the IRS.
Although there are now online self-filing forms, people who are not very tech-savvy will still take more time learning how the thing works. A professional tax preparer can efficiently work because they have the experience and knowledge in tax preparations.
2. Get more money back
Although you are paying the government with taxes, the government may also owe some money you in some way. Tax professionals can identify areas where you can maximize your tax refund. For instance, if you overlook tax deductions and credits, then you lose money. Tax preparers know the ins and outs of the tax code so that their clients can get as much money as possible.
3. Avoid costly mistakes
Finally, professional tax preparers save their clients from potentially costly tax mistakes. Simple mistakes like typos in your social security number to complex computational errors can spell penalties, delays, and even tax cases that the IRS can lodge against a taxpayer as a result of an audit.
Therefore, professional tax preparers play a vital role in ensuring that their clients pay the right amount of taxes while taking advantage of as many credits and deductions as possible. And because preparing taxes can be complex and toiling, tax preparers can ease these burdens from their clients, making the tax season a stress-free time for them.
Do tax preparers make good money?
According to the Bureau of Labor Statistics, tax preparers make around $10 to $30 per hour, with $25 per hour being the median hourly income.
A tax preparer’s income is affected by several factors. For instance, if you’ve just gotten your license or PTIN and this is your first tax season as a tax preparer, your hourly wage would be on the lower side.
But each tax season you gain more experience and knowledge, allowing you to become more efficient in finding more ways to help your clients save money. As you become better at your job, you can also increase your hourly rate.
Apart from experience, your credentials also matter when setting up your rate. Those who have gained higher education (bachelor’s degree or masters, for instance) command better rates. Additionally, getting continuing education and certifications from various institutions help you build up credibility and reputation, giving you the leverage in setting higher rates.
Working as a Tax Preparer: Pros and Cons
Wondering whether tax preparer jobs are right for you? Here are the top pros and cons of working as a tax preparer:
- It’s a recession-proof business. Taxes will always be part of our lives. Having the understanding and knowledge of tax preparation is an asset because it’s a service you could offer to others year after year.
- Flexibility. You can prepare and file taxes for others in your own schedule, as long as you meet the deadline. The tax software is online too, allowing you to work anywhere.
- Low overhead costs. The most that you’ll need to work as a tax preparer is a laptop, internet connection, and tax software. It’s easily one of the best low-cost business ideas you can start from home!
- No degree and experience are required. Certified tax preparers don’t need to obtain a specific degree to offer their service. A high school diploma and online education on tax code and preparation (preferably IRS-certified) are enough to get you started in the business.
- Seasonal income. Tax preparers are at their busiest at the start and during the tax season. Once the tax season is over, your income could go down if you don’t have other streams of revenue. However, some companies provide year-long employment for tax preparers.
- Stress and long working hours during the tax season. Tax preparers work longer hours than most people during the tax season in order to meet the deadline without incurring errors in their clients’ tax returns.
How can I become a tax preparer? This is the question you’ve been dying to get answered since you’ve gotten here.
What degree does a tax preparer need?
In general, tax preparers do not need to finish a specific degree. In most cases, a high school diploma is sufficient for someone to get certified as a tax preparer.
However, if you are thinking of getting a more specific credential and provide a wider range of tax-related services, you need to finish a specific degree relative to your chosen career path. For instance, certified public accountants need to finish a degree in accounting, while tax lawyers need a Juris Doctor or Masters of Laws in Taxation.
If you’d like to get a headstart in tax preparation, you can look at courses being offered in universities and community colleges. Alternatively, you can seek online courses and training in tax preparation, which we will discuss below.
PTIN (Preparer Tax Identification Number) and EFIN (Electronic Filing Identification Number)
One of the most important things you need to take care of once you’re committed to becoming a tax preparer is getting your very own ID, and that is called the PTIN or Preparer Tax Identification Number.
The IRS mandates every individual who wishes to offer his or her tax preparation services for others to obtain a PTIN. New tax preparers can easily obtain their PTIN from the IRS as quickly as 15 minutes. Prepare these documents on this PTIN checklist to expedite the process. Also, note that there’s a non-refundable fee of $35.95 when obtaining a new PTIN.
Getting your PTIN is just the starting point. Now you want to obtain an EFIN as well, or Electronic Filing Identification Number. Now that many people prefer to file their taxes electronically, it only makes sense to get an EFIN so you can provide this service to your clients. An EFIN would certainly come in handy when starting a tax preparation business at home or online.
Certifications and Licenses
As a PTIN and EFIN holder, you can now start preparing and filing taxes for others.
But you will still have to comply with the regulations in your state to become a certified tax preparer. There are seven states that require “special credentials” so you can practice as a tax preparer in those locations.
For instance, in California, you need to register online with the state as a tax preparer. You must also go through a fingerprinting procedure, pass a background check, prepare a bond of $5,000, and obtain a 20-hour continuing education plus 60-hour qualifying education on tax laws each year. Click here for more information.
Meanwhile, in New York, you need to be at least 18 years old and have a high school diploma. You must register with the state as a tax preparer. You must also obtain a qualifying education on basic tax course if you have less than three years of experience in filing tax returns in New York. Find more information here.
Other states that require you to obtain a state license as a tax preparer are the following:
If there’s one thing that might hold you back from working as a tax preparer, it’s probably you don’t know a lot about tax preparation.
I understand that thought of doing taxes is enough to overwhelm many of us, and that’s because we didn’t have enough preparation to become more efficient in preparing and filing tax returns.
Thankfully, you can learn everything you need in tax preparation in just a single, comprehensive course – the TaxBiz. This course is offered by the Bookkeepers, and it’s one of the best tax preparation courses out there.
The course walks you from the basics of tax preparation, all the way to filing up tax forms, to marketing your tax preparation business. Also, TaxBiz is certified by the IRS, so completing this course gives you a more solid reputation as a tax professional.
This is a self-paced program, so you can easily incorporate your study time while looking after your kids.
How much does it cost to become a tax preparer with TaxBiz?
Taking up this course is a financial investment to build your tax preparation business. The course costs $2995 (which is currently on sale at $1995). You can opt to pay the course in full or pay in monthly installments.
I understand if you are shocked by the cost of this course, and you aren’t even sure if you’re going to like tax preparation after all that money is spent. So I recommended you take the TaxBiz FREE Workshop first. This workshop answers the questions that you have as an aspiring tax preparer, such as:
- What is your potential income like?
- What’s a typical day like for a tax preparer?
- What are the tools and tech that you need in your job?
- And how do you get high-paying clients?
By answering these questions during the workshop, you’ll have a more solid idea if tax preparation is a great fit for you. And if you think it is, then it’s the right time to purchase TaxBiz so you can get started with your learning journey in tax preparation.
Every tax preparer must be armed with the right tools of the trade, and in this case, it would be your tax software. Tax software comes in different forms, but as you are about to offer your services as a tax preparer, it is best to choose professional tax software.
When choosing tax software, you must consider several things. First, the software must be automatically updated with the changes in the tax code. Tax laws can change from time to time, and it’s important that the software you use is updated to make sure use the right forms and input the correct information in the right places.
Additionally, you must choose a software that supports electronic filing, one that’s easy to use and navigate, error diagnostics feature, and of course, the cost.
Some of the best professional software for tax professionals, according to ZDNet:
Now that you have learned to become a licensed tax preparer, it’s about time you earn some real cash. Here are the steps to take to help you build your own tax preparer business from scratch.
1. Secure the necessary documents
Apart from the PTIN and EFIN, you also need to secure a business license and insurance policies to get your tax preparation business moving. You might be required to prepare and submit additional documentation based on your state laws.
2. Set up your home office.
Having a dedicated, distraction-free home office allows you to be more efficient in your job. At the very least, you need a reliable computer with your tax software of choice, internet service, and office supplies.
3. Pick a business name
It is also important to decide on an impactful business name because it will be printed in all your marketing collateral. Before you finalize the business name, do an in-depth search to make sure that it is not taken by another person offering the same service.
4. Register your business.
Decide on the business structure, whether it’s an LLC or S-Corp. Registering your tax business LLC makes more sense than as an S-Corp, because LLCs have lesser compliance requirements, are easier to manage, and have fewer restrictions.
You can easily register your business with Better Legal. They help new companies through the LLC formation process. They offer a simple business formation solution that is available in all 50 states in as fast as 1-3 days.
5. Get the word out.
Find your first clients by making your business visible offline and online. Here are a few ways to market your business:
- Word of mouth – offer your tax preparation business to family and friends. Prepare an elevator pitch to entice them to avail your services. It’s also a good idea to offer a referral discount to get your existing customers to advertise your business to others.
- Professional website – a professional website for your tax preparation business is an essential marketing tool in this digital age. Make sure that your website has excellent content, is search engine optimized and responsive. It’s also good to post blogs on topics concerning the industry to get your website ranking up.
- Google My Business – registering your tax business on Google My Business or GMB allows you to attract more customers in your location. With a business profile on GMB, potential customers can find you in Google maps as well as in local search results.
- Newsletters – keep your mailing list updated about your business by sending them newsletters. The best time to send these newsletters is when the tax season is looming near, as this is the time that they start thinking about taxes. By penetrating their inboxes with your newsletters, you are able to put your business top of mind amongst your subscribers.
- Social media – of course, you should harness the power of social media in promoting your home-based tax preparation business. Social media is free, easy to use and everyone’s in it, so using it makes perfect sense. You can drive traffic and engagement with both organic and paid campaigns. You can also use social media to promote your business website.
- Get involved with the community – market your business in person by being where the people are. Attending fundraisers, trade fairs, and other community events to meet new people. Get your business cards ready because you’d have to hand them out when you meet someone who’s in need of tax preparation services.
Are you raring to start learning how to become a tax preparer? Good, because many people turn to tax professionals during tax seasons. For you, this means that you would be kept busy for the first quarter of the year, and make a good income during those months.
It’s a good thing too that you can become a certified tax preparer without studying law or accountancy. You can turn to IRS-certified online courses like TaxBiz so you can start learning everything about tax preparation and filing. This is a wonderful work-from-home opportunity with good income potential, so start learning how to become a tax preparer now and get ready to offer your services next tax season!